Microsoft is facing a $1.27 billion lawsuit in the UK over allegations of unfair pricing that harm businesses using rival cloud platforms like Amazon Web Services (AWS), Google Cloud, and Alibaba Cloud.

The lawsuit, filed on December 3 at the Competition Appeal Tribunal, claims Microsoft exploits its dominant market position to favor its cloud platform, Azure, by offering lower prices to customers who use its services. Conversely, businesses that opt for competing cloud platforms reportedly face higher costs, particularly when using Microsoft’s Windows Server. This pricing strategy allegedly pressures companies to switch to Azure, thereby stifling fair competition in the cloud market.

The legal action represents thousands of UK businesses and organizations in an "opt-out" class-action suit, meaning all affected entities are automatically included. If successful, the companies could receive compensation without having to individually join the case.

The complaint argues that Microsoft’s pricing model penalizes businesses for using competitors like AWS, Google Cloud, and Alibaba Cloud by making it more expensive to run Windows Server on these platforms. According to the claim, this approach unfairly limits competition and forces customers toward Azure.

"Microsoft is essentially penalizing UK businesses and organizations for opting for rival cloud computing services by charging them higher fees for Windows Server," said Stasi, the legal representative leading the case, in a statement to CNBC.

The lawsuit seeks to put an end to these alleged practices, assess the financial impact on UK businesses, and recover excess costs imposed on them. If the tribunal rules in favor of the claimants, Microsoft could face significant financial penalties and changes to its pricing practices.